Truth in Lending: 10.7.1 Overview
After the proceeds of the transaction have already been disbursed, creditors are often reluctant to follow the law in responding to a notice of the right to cancel received from a homeowner.
After the proceeds of the transaction have already been disbursed, creditors are often reluctant to follow the law in responding to a notice of the right to cancel received from a homeowner.
Both the statute and Regulation Z make clear that, if the consumer has the extended right and chooses to exercise it, the security interest and obligation to pay charges are automatically voided—period.1132 The statute, section 1635(b), states: “When an obligor exercises his right to cancel, . . . any security interest given by the obligor . . .
The potential for damages against a noncompliant creditor in a rescission case is greater than in a nonrescission TILA case.
Practitioners should be sure to evaluate the case carefully to assure that all damages to which the consumer might be entitled are properly calculated. This is especially important if the consumers anticipate financial difficulty in making tender, as damage awards may offset much of the tender amount. Statutory damages are “capable of mathematical calculation,” but the plaintiff should be entitled to a hearing on actual damages.1458
A few courts have held that an assignee who rejects or ignores the consumer’s rescission is not liable for statutory damages unless the disclosure violations on which the rescission is based are apparent on the face of the documents.1467 These courts reason that section 1640(a) only imposes statutory damages liability on “any creditor,” which is defined by section 1602(g) as the entity to which the obligation was originally payable.
Attorney fees are available in rescission cases.1476 A few courts have held, however, that attorney fees are available against an assignee in a rescission case only if the underlying violation was apparent on the face of the contract.1477 These courts reason that, while rescission is always available against an assignee by virtue of section 1635(c), the right to attorney fees arises under section 1640(a), which makes them available against a “creditor” who fails to comply with TILA.
Once a consumer tenders return of the money or property delivered by the creditor, the creditor has twenty days to take possession of it. If the creditor does not take possession within twenty days, the statute and Regulation Z are both explicit that ownership of the money or property vests in the consumer without any further obligation to pay for it.1487
A second scenario in which the consumer may claim the right to keep the property or proceeds may arise more frequently, at least in the extended rescission context.
Since negating the consumer’s tender obligation because of the creditor’s noncompliance is inherent in Steps Two and Three in the rescission process, it is clear that courts have the equitable authority to modify it.1504 While the better rule is that the tender obligation should be negated unless the creditor shows some special equities in its favor,1505 courts typically make this remedy an exception rather than the rule, and confine it to cases involving deception, cheating, or overreac
Perhaps the most important aspect of TILA’s extended rescission right for consumers is its value as a defense to foreclosure.
Wis. Stat. § 422.306(2) (Consumer Credit Transactions); Wis. Stat. § 708.15(3) (Mortgage Satisfaction)
Requirements: None.
Ala. Code §§ 35-10-27, 35-10-30, 35-10-92
Alaska Stat. § 34.20.050
Requirements: After ten days written request to discharge, mortgage holder who refuses or neglects to discharge is liable for $300 damages plus any damages resulting from refusal or neglect.
Ariz. Rev. Stat. Ann. § 33-712
Requirements: Any person receiving satisfaction of mortgage is liable for actual damages upon failure to record within thirty days; after continuing failure for a further thirty days following a written request, liability is for $1000 plus any actual damages. Mortgagor may obtain payoff deed from a title insurer in specified manner if mortgage holder (including “account servicing agent”) fails to provide such after sixty days from date of full payment. § 33-750.
Ark. Code Ann. § 23-39-513(2)
Requirements: Improper refusal to issue satisfaction or release is prohibited practice. See Appx. D.1, State Remedies, supra.
Cal. Civ. Code § 2941 (West)
Requirements: Mortgagee or assignee receiving satisfaction of mortgage is liable for actual damages and $500 upon failure to record within thirty days or, after recording, failure to honor written request to deliver original note to mortgagor. Cf. § 2943.1 as to equity line of credit after July 1, 2015.
Requirements: None.
Conn. Gen. Stat. § 49-8
Requirements: If release is not delivered within sixty days of satisfaction, mortgage holder is liable the greater of actual damages or $200 per week after the sixty-day period up to a maximum of $5000, plus costs and attorney fees. Mortgagor may have satisfaction recorded by duly appointed officer if mortgagee fails to record such within sixty days of payment. § 49-8a.
Del. Code Ann. tit. 25, § 2111
Requirements: None.
Fla. Stat. §§ 701.03, 701.04
Requirements: Within forty-five days of full payment, holder must cancel as required by law and must deliver to payor recorded satisfaction.
Ga. Code Ann. § 7-1-1013(4)
Requirements: Improper refusal to issue a satisfaction of loan is a prohibited act. Violation is misdemeanor subject to imprisonment or fine no greater than $1000. § 7-1-1019.
Haw. Rev. Stat. § 506-8
Requirements: Where failure to provide release within sixty days of written request, holder is liable for treble damages, costs, and attorney fees.
Idaho Code § 45-915
Requirements: Upon demand, holder must immediately deliver certificate of satisfaction or have it recorded; liability for non-compliance is damages plus $100.